Underlying world oil market fundamentals point to a better supply-demand balance with lower prices in the near term, the US Energy Information Administration said in its latest short-term energy outlook.
But EIA also reduced its 2008 outlook for supply growth outside the Organization of Petroleum Exporting Countries and warned that “any weakness in oil prices could be minimal and short-lived” if demand grows more than expected or supplies are interrupted.
EIA said a combination of slower US and global demand growth, increased OPEC production capacity beginning in the third quarter and continuing through 2009, and higher supplies outside OPEC “raises the prospect for a drop in demand for OPEC crude oil and an increase in surplus capacity.”
EIA added, however, that the US Department of Energy’s forecasting and analysis revised its second-half 2008 non-OPEC supply growth outlook to an additional 510,000 b/d. This revision was due to project delays in Asia, lower-than-expected production growth in former Soviet Union republics, lower growth in Canada caused by an upward revision of 2007 data, and reduced production in Azerbaijan with closure of the Baku-Tiblisi-Ceyhan pipeline.
EIA anticipated that the 850,000 b/d of non-OPEC supply growth that it forecast for 2009 would be led by Brazil, the US, and Azerbaijan, but added, “Given recent history, possible additional delays in key projects as well as accelerating production declines in some older fields cannot be ruled out.”
OPEC production outlook
Downward price pressure also could be limited by supply risks in Iraq, Nigeria, and Iran and from hurricanes, and by OPEC possibly deciding to limit production and keep inventories tight, EIA said. Initially, however, it said that it expected OPEC production to rise by 600,000 b/d during the third quarter to 32.9 million b/d, assuming that Saudi Arabia maintains its July production level of 9.7 million b/d through the quarter. It forecast that OPEC’s total production could drop to about 32.4 million b/d during the fourth quarter and 31.6 million b/d in 2009.
It also said that lower crude production, combined with planned increases in OPEC’s total liquids production capacity, suggests that the cartel’s surplus crude production capacity could grow from its current 1.2 million b/d level to about 3.6 million b/d by yearend 2009. “Although an increase in the supply cushion could ease upward price pressure, it does not appear large enough to trigger a sharp price decline. Moreover, possible delays in adding supply capacity, proactive OPEC decisions to cut output or expectations that supply growth in the post-2009 period will have a difficult time keeping pace with demand, could minimize and shorten any market weakness,” EIA said.
Domestically, it projected that total US petroleum and other liquids consumption will shrink by nearly 500,000 b/d in 2008 based on prospects for a weak economy and continuing high crude oil and product prices extending into 2009. Preliminary data show that year-to-year demand declines narrowed to just over 400,000 b/d during June and July from almost 900,000 b/d during 2008’s first 5 months, it added. EIA said that it expects year-to-year demand declines during 2009 to be even less, about 120,000 b/d below the 2008 average.
It said it expects West Texas Intermediate crude prices, which averaged $72/bbl in 2007, to average $119/bbl in 2008 and $124/bbl in 2009. Retail regular gasoline prices, which averaged $2.81/gal nationwide in 2007, are expected to average $3.65/gal this year and $3.82/gal in 2009. “Gasoline prices are expected to continue falling slowly, average just less than $3.80/gal over the next few months. This forecast reflects continuing weak gasoline margins because of the decline in gasoline consumption and growth in ethanol supply,” EIA said.
